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An investment in new construction property can be very profitable so long as you’re willing to take the steps to make the most of your investment. Among the many benefits which new construction provides are easy marketing to buyers looking for a quality home, and the ability to customize the property to fit your specific financial goals. You also have the potential to make a great return if you invest in a high demand market at the right time. Are you considering investing in new construction for your next real estate project? Continue reading as we cover the 5 steps you’ll want to take with your investment.
Research target markets
The key to turning a profit with new construction is building a home in a market with good demand for housing. And if you want to find such a market, you’re going to have to take the time to do research. Census data, job reports, and population numbers are all great sources of information you will want to look through. You may also want to look at things like the number of closings each month in a particular market, and the direction that average and median home prices are moving. These can help indicate whether a market is growing or shrinking. For great, up-to-date information on real estate markets, you should consider using data aggregators such as ATTOM Data which can provide you with everything you’ll need for a low cost.
Pick a good location
Once you do have a target market in mind, you’ll need to find a good neighborhood to build the home in. Ideally, it should be a safe area with access to things like shopping, entertainment, and good schools for family-oriented buyers. Often times contractors will make plans for entire subdivisions and then seek out investors for their project. An investment in a new subdivision can produce great returns, since by the time construction is completed on your property there will be other brand-new homes surrounding it and a growing neighborhood to bring up value of your investment.
Crunch the numbers
After you’ve found a good area to build a new property in, you’ll want to run the numbers on the project to see if it’s really worth your investment. There should be enough of a profit margin built into the deal that you can still make a good return even if something doesn’t go as planned. It can also be a good idea to leave a 10% buffer in your expense calculations to cover those unexpected costs that may pop up. Speaking of expenses, don’t forget to include permits, licenses, and marketing fees on top of the typical material and labor costs you can expect to pay in construction. If all the numbers still make sense after considering every expense, then you should be ready to move forward with the deal.
Find a quality builder
Getting in touch with a builder that you can trust will help make the entire construction process go much smoother. An experienced builder will not only make sure the property is built to spec, but they can also help keep construction on-schedule and under budget. When you’re evaluating a builder, you should ask for examples of past projects to get an understanding of the quality of their work. You’ll also want to ask if they warranty their work, which can often be a good indicator that they trust their craftsmanship. Finally, you will want to stay involved throughout the construction process to ensure that the proper standards of quality are met, and that the project doesn’t fall behind schedule. Being communicative and taking care of issues as soon as they pop up will help ensure the success of your investment project.
Work with other qualified professionals
One more thing that can help you maximize the return of a new construction investment is having the right professionals in your corner. You will most likely be working with a real estate agent when it comes time to sell your property, so make sure you’re working with a good agent that’s familiar with the area and knows how to market to potential buyers. Another great professional to have on your side is a certified accountant or similar tax expert. They can help you set up a proper real estate investing LLC and maximize the deductions related to your investment, which will let you keep as much of your hard-earned returns as possible.
Bonus tip: Secure financing from a trusted lender
If you want to save on a new construction investment, work with a trusted lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors & developers across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you are an investor looking to acquire financing for a property, RCN Capital has competitive loan options available.Connect with us todayto discuss your next real estate investment.